Correlation Between Mid Cap and International Government

Can any of the company-specific risk be diversified away by investing in both Mid Cap and International Government at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Mid Cap and International Government into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mid Cap Strategic and International Government Bond, you can compare the effects of market volatilities on Mid Cap and International Government and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Mid Cap with a short position of International Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and International Government.

Diversification Opportunities for Mid Cap and International Government

-0.67

Correlation Coefficient

Mid Cap  International Government

Excellent diversification

The 3 months correlation between Mid and International is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Strategic and International Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Government and Mid Cap is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Mid Cap Strategic are associated (or correlated) with International Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Government has no effect on the direction of Mid Cap i.e., Mid Cap and International Government go up and down completely randomly.

Pair Corralation between Mid Cap and International Government

Assuming the 90 days horizon Mid Cap Strategic is expected to generate 2.9 times more return on investment than International Government. However, Mid Cap is 2.9 times more volatile than International Government Bond. It trades about 0.22 of its potential returns per unit of risk. International Government Bond is currently generating about -0.11 per unit of risk. If you would invest  1,913  in Mid Cap Strategic on September 12, 2024 and sell it today you would earn a total of  255.00  from holding Mid Cap Strategic or generate 13.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Mid Cap Strategic  vs.  International Government Bond

Mid Cap Strategic

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Strategic are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

International Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Government Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, International Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and International Government

The main advantage of trading using opposite Mid Cap and International Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, International Government can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in International Government will offset losses from the drop in International Government's long position.

The idea behind Mid Cap Strategic and International Government Bond pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Managers module to screen money managers from public funds and ETFs managed around the world.